As U.S. asset managers push to list leveraged exchange-traded funds tied to Japanese memory chipmaker Kioxia, concerns are mounting over the potential for amplified stock price volatility. Market watchers warn that a proliferation of single-stock leveraged ETFs could distort normal market mechanisms, echoing past episodes involving South Korea’s Samsung Electronics and SK Hynix.
According to Bloomberg News on the 27th, U.S. asset managers including Corgi Strategies, GraniteShares, and Tuttle Capital are preparing to launch leveraged ETFs that track Kioxia shares and its American Depositary Receipts. At least nine products are currently under review by U.S. securities regulators, including funds designed to deliver twice the daily return of Kioxia’s stock price, as well as inverse ETFs that move in the opposite direction.
If approved, these would be the first single-stock leveraged ETFs for a Japanese company to list on U.S. exchanges. The push comes as the global leveraged ETF market has swelled to roughly $270 billion, fueled by the AI investment boom, with U.S. investor appetite for Japanese equities also on the rise.
“There are a lot of interesting Japanese companies that U.S. investors want access to,” said Matthew Tuttle, CEO of Tuttle Capital, adding that “Japan will be the next growth market for single-stock leveraged ETFs.” He said the firm’s T-REX 2X Long Kioxia Daily Target ETF could launch as early as next month.
However, market experts caution that the structural characteristics of leveraged ETFs can further amplify the volatility of their underlying assets. To maintain their target returns, leveraged ETFs must rebalance positions near the end of each trading day. This process can widen price swings as hedge funds and market makers front-run the anticipated trades.
Andrew Jackson, head of Japan equity strategy at Ortus Advisors, noted that “as we’ve seen in South Korea, leveraged ETFs distort normal market mechanisms and significantly amplify volatility.” He added that they “particularly exacerbate overheating in AI-related stocks, which can create an extremely challenging investment environment for long-term investors.”
Indeed, South Korea saw a surge in single-stock leveraged ETFs tracking Samsung Electronics and SK Hynix, which contributed to heightened volatility and ultimately prompted financial authorities to halt new single-stock leveraged ETF listings. Bloomberg reported that recent wild swings in AI semiconductor stocks have pushed the KOSPI’s annualized volatility above 75%, compared with 37% for Japan’s Nikkei 225 and 13% for the U.S. S&P 500.
Kioxia briefly became Japan’s most valuable company by market capitalization in June as it rode the AI memory chip wave, but its market cap has since been nearly halved amid waning AI investment sentiment, making it one of the most volatile large-cap stocks in Japan. Still, Wall Street remains broadly positive on Kioxia’s medium- to long-term outlook. The average 12-month analyst price target compiled by Bloomberg stands more than 110% above the current share price.
Beyond Kioxia, U.S. asset managers are lining up leveraged ETF launches tied to other major Japanese companies. Tuttle Capital is preparing products linked to SoftBank Group, Nintendo, and Metaplanet, while Direxion is eyeing Tokyo Electron and Toyota Motor. Themas ETF Trust is exploring products tracking Fujikura and Lasertec.
Under current regulations, single-stock leveraged ETFs cannot be listed in Japan because they fail to meet diversification requirements. However, Japanese investors can still trade these products listed on overseas exchanges through local brokerages.